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WHAT DOES “SOLE BENEFIT OF” MEAN WITH RESPECT TO A DISABILITY ANNUITY TRUST

WHAT DOES “SOLE BENEFIT OF” MEAN WITH RESPECT TO A DISABILITY ANNUITY TRUST

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Jul 11, 2016 |
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by Thomas D. Begley, Jr., CELA

The key issue concerning trusts “for the sole benefit of” is availability. In a private letter, HCFA, now CMS, has taken the position that a trust established for the sole benefit of a community spouse under HCFA Transmittal 64 is an available resource.[1] HCFA maintained that there is a material difference between a standard annuity and an “annuitized” trust. HCFA states:

a standard annuity can protect the funds used to purchase the annuity from being counted as resources in determining eligibility for Medicaid. However, there is a fundamental difference between a standard annuity and the “annuitized” trust you established. A standard annuity requires the actual purchase of a commodity; i.e., the annuity itself. A specific amount of money is given to the entity selling the annuity, in return for which the entity contractually agrees to provide an income stream for a specified period of time. Upon completion of the transaction, the buyer no longer owns the funds used to purchase the annuity. Instead, the buyer owns the annuity itself. If the annuity is irrevocable, as most annuities are, the buyer cannot reclaim ownership of the funds used to purchase the annuity. The buyer is only entitled to the income stream purchased and only for as long as the annuity stipulates. This is essentially the same as the purchase of any item or product where funds are exchanged for ownership of something else.

It is important to note that the letter from HCFA is not law or policy. It is an interpretation of policy as articulated in HCFA Transmittal 64. Under this letter, only the amount of the CSRA could be able to be placed in a “sole benefit of” trust. HCFA Transmittal 64 clearly compares the transfer of assets to a community spouse with the transfer of assets to a trust for the sole benefit of a community spouse.[2] The document clearly states “when transfers between spouses are involved, the unlimited transfer exception should have little effect on the eligibility determination, primarily because resources belonging to both spouses are combined in determining eligibility for the institutionalized spouse.” Thus, resources transferred to a community spouse are still be considered available to the institutionalized spouse for eligibility purposes.